Data-driven health insurance company Clover Health Investments, Corp. (CLOV - Get Rating), which is based in Franklin, Tenn., offers preferred provider organization (PPO) and health maintenance organization (HMO) health plans for Medicare-eligible consumers. Unfortunately, although the meme-stock fervor set CLOV on fire  in June, the stock has lost its momentum lately. Its shares are down 37.9% over the past month and 43.5% over the past six months.

While an increase in membership and CLOV’s progress in providing high-quality care to its customers helped it generate decent revenue growth in its last reported quarter, its losses have nearly doubled. Management expects the company’s  non-GAAP normalized adjusted EBITDA to be in the range of negative $240 – $190 million for the full year 2021. Furthermore, the company has yet to establish itself as a profitable player in the healthcare industry.

The stock is trading 71.2% below its all-time $28.85 price high, which it hit on June 9, which indicates bearish sentiment. Also, it is trading lower than its $10.41 and $10.57 respective 50-day and 200-day moving averages, which reflects a downtrend.

Click here to checkout our Healthcare Sector Report for 2021

Here is what we think could influence CLOV’s performance in the near term:

Ongoing Investigations

In May, Scott+Scott Attorneys at Law LLP started investigating CLOV’s directors and officers for potential breach of their fiduciary duties to Social Capital Hedosophia Holdings Corp. (SCH III) and its shareholders. Also, Robbins LLP and Lifshitz Law Firm, P.C. announced an investigation into CLOV on behalf of its shareholders for allegedly misleading investors ahead of going public and for potential violation of the Securities Exchange Act of 1934.

Lackluster Financials

For the first quarter, ended March 31, 2021, CLOV’s total revenues increased 21% year-over-year to $200.33 million. However, its loss from operations rose 347.2% year-over-year to $119.09 million, while its net loss grew 71.9% from the prior-year quarter to $48.42 million. CLOV reported a negative adjusted EBITDA of $76.22 million for this quarter, compared to a negative adjusted EBITDA of $21.7 million. The company’s adjusted operating expenses came in at $61.92 million, representing a 29% increase  year-over-year.

Poor Profitability

CLOV’s 8.6% trailing-12-month gross profit margin  is 84.3% lower than the 54.9% industry average. Also,  its trailing-12-month net income margin, ROE, ROA, and EBITDA margin are negative 21.7%, 324.7%, 18.1%, and 25.6%, respectively. CLOV’s trailing-12-month cash from operations is negative $174.19 million.

Unfavorable POWR Ratings

CLOV has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. CLOV has a D grade for Growth and Quality. The stock’s inadequate financial strength and low profitability are reflected in these grades.

CLOV  has an F grade for Stability, indicating that it is more susceptible to volatility than its peers.

In addition to the grades we’ve highlighted, one can check out additional CLOV ratings for Sentiment, Value, and Momentum here.

CLOV is ranked #12 of 12 stocks in the B-rated Medical – Health Insurance group.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

While discussion on the r/wallstreetbets forum motivated retail trades and drove CLOV’s shares to unsustainable levels, the healthcare plan provider’s underwhelming financial performance and weak fundamentals have caused its shares to decline significantly over the past month. In addition, ongoing legal investigations of the company could further add to investors’ concerns surrounding the stock’s prospects. So, we believe it’s wise to avoid the stock now.

Click here to checkout our Healthcare Sector Report for 2021

CLOV shares rose $0.02 (+0.24%) in premarket trading Thursday. Year-to-date, CLOV has declined -50.39%, versus a 18.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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